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Programme for Research: EUC Report

My Lords, what a pleasure it is to work on Sub-Committee B. Our Clerk, chairman, advisers and my colleagues are all committed and I thank them for their diligence and companionship. Like my noble friend Lord Giddens, I rather like the seventh framework programme proposal. What I like about it is that it does not treat research and development as something that just happens on its own in isolation—something that takes place in a laboratory somewhere. Of course, the research is essential, but it is not enough for innovation, which comes from a combination of things. The noble Baroness, Lady Sharp, spoke of collaboration; she is right. We list some of the collaborations in our report, including co-operation between universities, business and industry, research centres, public authorities and consumers. That co-operation is central to innovation—it is ““knowledge transfer””, to use the jargon. In addition, there have to be business models which can accommodate the new technology, and there have to be people trained in science. Indeed, the Prime Minister is speaking today about this. What excellent timing by my noble friend Lord Woolmer! As the noble Baroness, Lady Sharp, said, all this has to work across frontiers. I think the seventh framework proposal largely tries to take all this into account. This is why I think that our committee was right, and the Government were right to welcome it and to welcome the increased funding, which should enable innovation and more productivity in member states. What did cause me concern was the memorandum from the CBI to the committee which seemed to disagree with this. The CBI somehow wanted proof of this—but it seems to me that the proof is all around us. As my noble friend Lord Woolmer reminded us, more proof appeared on Monday, when the DTI published its R&D international scoreboard. Yet again, this demonstrated the link between R&D spending and growth. The CBI in its evidence is right that participation by industry fell away in the sixth framework, but this has happened everywhere—and, yes, the leeway has been taken up by the universities. But the seventh framework agreement tries to deal with this with the joint technology initiatives, the national mobility programme and the mechanisms to encourage knowledge transfer, which are all designed to involve industry more. The CBI has concerns about bureaucracy but, as the noble Lord, Lord Sainsbury, pointed out in his evidence, the Commission has published an annexe with proposals which set out what it is going to do about simplification. These proposals seemed sensible to him; they also seem sensible to me. They should make the funding schemes simpler and more flexible. However, there are two areas where one might criticise this proposal. The first is ““why bother””, because everything is going to be made in India and China anyway. Secondly, and perhaps more seriously, the seventh framework does very little for the services sector, which is now the major part of our economy. The view that nothing will be made here anymore is not only cynical but manifestly untrue. Lots of things are made here, but far more of them are made elsewhere—often made elsewhere as a result of our researching them, designing them, developing them, improving them and working on them here. This is a very important part of our industrial base. My noble friend Lord Woolmer asked the Minister for an example, and the noble Baroness, Lady Sharp, mentioned telephony. In this country we developed virtually every aspect of the modern mobilephone and its network—the liquid crystal display,the detector technology, the nipple antenna and the embedded software were all developed here. The phones themselves are made and used elsewhere, but what is of crucial importance to our economy is the trade, not only in the innovative products, but in the services relating to the installation, development and improvements to these innovations. In mobile phones, this has been enormous in our economy. This part of our manufacturing economy islargely ignored, often misunderstood and probably misrepresented in statistics. It has been and will be important in many other industrial sectors, in molecular biology and genetics and in the creative industries of the 21st century, as my noble friend Lord Giddens said. With our open approach to trade, collaboration and science, this is how the seventh framework programme will be of great benefit to us. It will also make us an attractive place for overseas companies to design, develop and research their new products. The matter of research and development in the service sector is a matter which I have raised with Ministers before, and I make no apology for raising it again. My noble friend Lord Giddens touched on the matter with his reference to new-style R&D. In his evidence, the Minister spoke of the low requirement for research in the service sector. Retailing is one of our major services, which has been revolutionised by R&D. When I started work in the textile industry,40 years ago, clothing shops had two ranges—summer and winter. Today, thanks to computer-aided design, tight integration of the supply chain by using modern communication technology, modern transport and distribution technologies, by using embedded information and instantaneous consumer feedback, stores such as Topshop and Zara renew their range every 14 days. These technologies have revolutionised the high street. By using these modern knowledge technologies, we have changed the lifestyle of many people. That is the kind of lifestyle niche change to which my noble friend Lord Giddens referred. Yet according to official figures, the retail industry spends an infinitesimal amount of money on research. I could make the same point about the financial services industry. A report from the Manchester Business School last year indicated that many service firmsdid not think that they were doing research and development because they regard this as a manufacturing-related concept. A couple of weeks ago, Nesta made the same point. I think that there is a lot in this. I spoke of the international R&D scoreboard that was published on Monday. Banks and retailers made their first appearance this year thanks to the adoption in Europe of the new international financial reporting standards, which require more detailed analysis of spending in the annual accounts. That detail began to show what they were spending on R&D. As my noble friend Lord Woolmer explained, the whole purpose of the seventh framework is to helpus respond to globalisation. Our response to globalisation is to move up the value chain. As you move up in value chain, the demands of the customer changes. Higher value products require higher value services, which require greater skill—not only in science and engineering but in the social sciences. This is a matter which needs more study in the seventh framework programme. On the European institute of technology, the Commission’s more detailed proposals were made after we reported and the Government responded. The Commission’s proposal is to spend €2.4 billion to create a network of research centres which would be called the European institute of technology. Their concern is that Europe’s academic standards are slipping further behind those of the United States and risk being overtaken by standards in China and India. The hope is that by linking a number of research centres and universities located around the European Union, they would help each other to raise academic standards to a level that will rival MIT. Like the noble Baroness, Lady Sharp, I am not sure about this. There needs to be more clarity of purpose in this arrangement; but there may be an alternative. In his report on climate change, Sir Nicholas Stern argues for a stronger focus on technological co-operation in energy R&D and in the low-carbon technologies. Co-operation in this between 25 nation states would be of great significance and could help Europe to stay in the forefront of the technology of climate change. With this firm purpose, the idea of a European institute of technology might be greeted with a bit more enthusiasm. Perhaps the Minister has more news about this institute, as my noble friend Lord Woolmer asked. I found it gratifying that the Government’s response joined the committee in generally welcoming the proposals for the seventh framework programme. The Commission has taken steps to tackle our concerns about bureaucracy and governance and has tried to incorporate all the various aspects of business which create innovation. I have tried to point out how it needs to give more thought to incorporating innovation in the services sector. Apart from this, the seventh framework programme is a good project. Public policy cannot create innovation, but it can ensure that the ingredients are there. I think the seventh framework programme does this, and I wish it every success.